Launchers Battle for Their Slice of the Pie

The launch services market is one of the most talked about in the satellite industry. With ferocious competition between exciting new entrants and established players, it remains to be seen how the market will shakeout in the next two to three years.

The order flow for new satellites is still pretty strong, which is good news for launch service providers, a competitive market in itself. However, from large Ka-band satellites to much smaller satellites, the market is as diverse as it has ever been, placing different demands on launch companies. It is a vibrant market.

It this roundtable, we talk to five commercial launch service executives about the state of the market, and whether or not there is enough business to go around. Included are Jean-Yves Le Gall, CEO, Arianespace; Frank McKenna, president, International Launch Services (ILS); Kjell Karlson, president, Sea Launch; Gwynne Shotwell, president, SpaceX; and Fu Zhiheng, vice president, Launch Services Division, China Great Wall Industry Corporation (CGWIC).

VIA SATELLITE: How many commercial contracts do you expect to win in 2012? How does this projection compare to 2011?

Le Gall: We hope to sign between 10 and 12 contracts for launching satellites to GTO on the Ariane 5 in 2012, about the same number as in 2011. We also expect to sign two or three launch contracts for Soyuz and Vega, both of which are now fully operational at the Guiana Space Center.

McKenna: ILS expects to win seven to eight commercial contracts this year, which is consistent with what we have been receiving. We have been maintaining a backlog during the last three years of 21 to 24 systems and that goes on a two year lead time to maintain our launch rate of approximately seven to eight commercial launches per year. This year, we will conduct nine to 10 commercial launches. We see seven to eight awards as our average. Last year we received seven awards, and nine the year before that.

Karlsen: We fully expect four to five contracts or assignments against our multi-launch agreements this year. Obviously for us, this will be up from 2011 where we essentially got assignments from our multi-launch agreements with Intelsat and Eutelsat. In 2011, we were really focused on returning to launch operations and ensuring that this was achieved successfully, which we did with the launch of the Eutelsat Atlantic Bird 7 and Intelsat 18 satellites. This year, we will focus on expanding our sales and marketing efforts in order to add backlog to our manifest.

Shotwell: In 2011, we added 10 missions to the manifest. Seven of those were commercial and six were GTO flights. This year I anticipate around the same, with probably the same make up of deals as well.

Fu: Compared to the western launch services providers, we don’t have as many contracts as they do. But for Long March family, the launch missions in these years are intensively planned, mostly for domestic programs. In 2011, Long March conducted 19 launches, which surpassed the United States and ranked second in the world. In 2012, there are 21 launch missions planned for Long March. CGWIC would like to constantly expand its international business, to explore and establish new ties with the international community for mutual benefits and win-win partnership.

VIA SATELLITE: Is the amount of contracts available likely to remain stable through 2014?

Le Gall: I don’t have a crystal ball, but I can say that with the growing interest in having satellites provide direct broadcast television and Internet services and the strong growth in the economies of emerging countries, we are relatively optimistic for 2013-2014. We should continue to sign at least a steady number of contracts during this period.

McKenna: We expect that our launch rate will be maintained through that timeframe. In 2014-2016, we should start to see a reduction in the total amount of launches in the GEO market. We have predicted this for some time, and I think the institutional forecasts are catching up with that. Right now, we have a peak of GEO launches. That was planned with the FSS replacement cycle and with other factors such as financing and market conditions. But, we do see a cyclical element coming into play between 2014-2016 with less than 20 launches to GEO, which would be below the historical average.

Karlsen: I believe the number of satellite contracts and launches awarded will range from 19-23 in each of these years. We expect and are planning for a small cyclical downturn beyond that. We remain optimistic that continued improvements in spacecraft and launcher technologies will provide the basis of growth for our industry.

Shotwell: As far as the GTO flights are concerned, I think those are going to remain relatively stable. So, I think you are going to see between 18 and 22 satellites a year for GTO. I think there maybe a slight dip in 2013-2014, but it will go back up in 2015 when we think there will be 21 satellites a year. SpaceX, however, is the new entrant. We are having great success in the smaller end. Some of the providers have talked about a slowdown this year and next year, but we are not seeing it.

Fu: We foresee that in the international market, the satellite demand will remain stable in the next two years, which is around 20 per year. Most of these satellites would be for replacements of in-orbit satellites, while some would be for new business with new applications like Ka-band broadband services. Accordingly, the commercial launch services demand will also be stable. For Long March, we are also keeping a close watch on the current U.S. export reform, of which satellite is one of the main subjects. It is our strong belief that we would win more contracts with the high-reliability of the Long March if there were no unfair political restrictions on us.

VIA SATELLITE: Are there any particular regions like Latin America where you expect to see an upsurge in new orders?

Le Gall: The regions showing the strongest economic growth have the weakest ground telecommunications infrastructure, which means that satellites can play a significant role in meeting demand for bandwidth. Latin America certainly has this challenge, as well as the Gulf countries and the Asia-Pacific region. Since the beginning of the year we have signed three contracts in these regions.

McKenna: We do see an upsurge and ILS has participated in the growth in Latin America. There are also a significant number of projects in the Middle East, Africa and India, etc. We launched Intelsat-22 recently, which will provide satellite capacity for Asia, the Middle East, Africa and Europe, and on April 24 we launched Yahsat 1B for Yahsat, enabling the deployment of their YahClick network that will provide high-speed broadband services across South West Asia, Africa and the Middle East. In South East Asia, we see some growth but those are smaller satellites.

Karlsen: Latin America is definitely a growth area and Sea Launch is optimistic about prospects for this region going forward. Brazil appears to be a very promising market with Anatel’s recent auctions of four orbital slots, the Brazilian government’s plans for developing MilComSats and continued growth in the country’s DTH space. Then you have the recent satellite orders from SCT in Mexico. We are also confident about growth coming out of the Middle East and CIS regions where we see new satellite projects emerging.

Shotwell: We are doing quite well in South East Asia, and there are starting to be a lot of great opportunities in the Middle East for us also. I anticipate some heightened activity there. I would say later this year or early next year we hope to announce some deals with operators in the Middle East.

Fu: We do believe that there is a growing demand for the need of satellite telecommunications in the emerging countries in Asia, Africa and Latin America, where we also focus our attention. Meanwhile, in addition to GTO telecom satellites, the demand for the low earth orbit satellites and the piggyback launches are growing as well, which could be a new market for us.

Le Gall: After a brief period of unrealistic expectations, fueled in part by the thought that launches were just another commodity and all one had to do was sign a contract to get one’s satellite into orbit, today it’s “back to basics” for most of our customers. They can fully appreciate that nothing replaces a launch services company committed to being ready, reliable and affordable, which is exactly what we offer at Arianespace, and the reason for our success!

McKenna: Customers have set up businesses plans that are demanding and very capital intensive. Their business models have specific technical requirements and include a significant amount of risk. Customers want consistent performance, on schedule delivery and good value.

In terms of trends, there are disruptive technologies and business models occurring in the launch market that has crept up slowly as the industry restructured during the last several years. We see a significant amount of competition, particularly in the low- to medium-class market, with the introduction of SpaceX and Falcon 9.

Karlsen: There is an increased level of competition. While there has been robust supply on the satellite manufacturing side for many years, customers want that same level of diversity on the launch service side. That is why there was strong support for Sea Launch from the satellite operators during and after our restructuring. We have seen a trend for fewer contracts being competed, captive either by multi-launch agreements, political considerations or export credit financing. In terms of spacecraft mass, we see two segments shaping up — one in the heavy-lift category driven by Ka-band and DBS/DTH applications and the other in the light and medium class, say around 3,500 Kg and below, driven by new satellite products being introduced by Boeing, SS/L and Orbital.

Shotwell: I don’t see a trend in our customers being more demanding, but keep in mind that we are relatively new to the GTO market. There are some other trends that are worth mentioning though. I think the move towards electrical propulsion on some of these satellites is great. I would characterize the recent deals done in this area as game changers. You will see a lot of shaking up in the market because of that. Commercial communications satellites that were traditionally in the 5.5-ton range are getting into the Falcon 9 Class range, which drops their launch prices dramatically by 50 percent or more. That is great for us. We are seeing a slowdown in the 4.5 to 5.5 ton range. We are seeing a definite increase on the small side and beginning to see a build-up of increased mass on the larger side as well.

Fu: New launch vehicles have joined the commercial launch services competition, so there is no doubt that the competition is becoming more severe. On the one hand, the major players keep improving their capabilities and services; on the other hand, new entrants like SpaceX have already won a number of orders without fully demonstrating their GTO launch capability and are a big hit in the market. With more players in the market and the launch demand remaining flat, every player is now facing more fierce competition. On the customers’ side, the demand will evolve with the development of the industry and the technology progress. For example, we have seen more and more customers require the financial support from the contractor for programs, and the electronic propulsion satellite has set new requirements for the launch services providers. However, the most critical concern of the customers will always be the high-reliability and the launch schedule assurance, which are the advantages of Long March.

VIA SATELLITE: When the market goes through a slower phase, will there be enough business for all of the players?

Le Gall: First of all, I’m not convinced that the market will experience a downturn. For the moment we’re seeing the market hold up thanks to applications like direct broadcast TV, satellite Internet and mobile communications. Secondly, I think that even if the market were to contract, quality would be more crucial than ever. Quality of course means the reliability of the launcher. With 48 successful launches in a row, it’s now clear that Ariane 5 is the leader. I frequently say that we sell a lot more than just a launcher — we provide launch services. Arianespace has established a full suite of services surrounding the launch vehicle. Every day we progress, and this gives me great confidence regarding the future of our company and our industry.

McKenna: No. We have predicted another shakeout and we know how the industry has to restructure itself. If you have not prepared for the downturn, the industry will adjust and the weaker players will have to exit the market. The lead times on launches are predicated by 36-month lead times on the satellites. You can already see where that stress is going to occur. We have positioned ourselves very carefully in the heavy lift market with manifest management and upgrades to the vehicle, which our customers are demanding. So, our stream of business is remaining relatively constant. ILS and Khrunichev can adjust to a drop in demand because of the way we have managed our business.

Karlsen: We have built a solid business plan based on fewer launches than our competitors require per year. In the restructuring, we were able to discharge development-era debt from our balance sheet. We now have a very strong balance sheet and no long-term debt. As I mentioned, we have taken some of the lessons learned since 1998 and applied them to our day-to-day operations, which allow us to be successful with a smaller number of launches. I think that is one of things you have to do to withstand the cyclical nature of this industry. I believe we are fully prepared to do this.

Shotwell: I think we all decided at a panel in Hawaii a number of years ago that three providers in each segment, the small side and the big side, can probably sustain the business. I don’t know what everybody needs to stay alive. Arianespace has four to five GTO flights a year. Proton does 12 flights, four of which are for the Russian government. It does about eight a year. CGWIC does a lot of business, but most of it domestic. Given the fact that we have business in so many sectors, I can’t say there is a minimum amount we can have in any one sector, but we would like to have 50 percent or more in each sector. That is pretty aggressive and we don’t need anywhere near that number. I would say we are not doing a good job if we don’t get 30 percent to 40 percent market share in both the small and large side.

Fu: At present, there are quite enough players in the international launch services market while the satellite demand is slowing down. It seems that there is not enough commercial business for every player. However, we also note that many players in the market provide services to the government agencies in addition to commercial business. That will help the launch services providers to some extent.

VIA SATELLITE: Do you expect to see more high-powered Ka-band satellite contracts in the future?

Le Gall: The Ka-band satellite market is beginning to thrive because it’s one of the most effective ways of providing Internet connectivity for regions that are traditionally underserved, like rural America and sub-Saharan Africa. For the moment, use is relatively modest — this is more than just a question of satellites, in many cases it’s because of the distribution network. But things are moving ahead at a fast pace, and I believe that within five years, the launch of Ka-band satellites will account for a large slice of our market.

McKenna: A number of early successes have now occurred in Ka-band. ILS launched Ka-Sat, which validated the demand for this capability. We also launched ViaSat-1 last year, the heaviest satellite launched on ILS Proton at more than 6.7 metric tons. On April 24 we launched Yahsat 1B for Yahsat to serve commercial and government users, and in 2014 we will launch Inmarsat’s Global Xpress satellites. Boeing, Space Systems/Loral and Astrium are developing these satellites, and we are launching them. Will it be five satellites annually? No, but it will fill in a little bit of the trough as there is a continuing demand for fixed and mobile broadband around the globe.

Karlsen: Surprisingly, it was mentioned during the SATELLITE 2012 conference in Washington, D.C., that DirecTV has been the most successful Ka-band player in the market so far. I think a lot people took note of that. We are seeing continued proposal activity in Ka-band satellites and are well placed to compete for these with our existing launch capability. Sea Launch is currently working with our new owner, RSC Energia, to increase the lift capability of our vehicle to match the growth of these satellites. By the end of 2014, the lift-capability will grow to 6.700 kg, and a lengthening of our Boeing-made fairing will take place. This will make it easier to fit these larger Ka-band satellites on our system. Combined with our dedicated launcher configuration, this will provide a good solution for the marketplace.

Shotwell: There is no question there is a lot of future opportunities for us, but those satellites will require the Falcon Heavy. The Heavy is a perfectly suited vehicle for missions like that. You could do a dual manifest and have two of those huge satellites on one Heavy. There is no question that this is going to be an important market segment for us. We do have good relations with companies in that arena. We expect we will do one or two Falcon Heavy deals in the near-term. It should not surprise anybody if we announce two or three Falcon Heavy deals this year.

Fu: Currently there is a rising demand for this kind of satellites in the market, not only in the developed countries, but also in the developing counties and regions like Africa. China is also conducting the research and development of Ka-band satellite technology, and we expect to launch a Ka-band satellite in the coming years.

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